How can you get funding for your small business?

Starting and running your own small business in South Africa isn’t easy but it can be very rewarding when you get it right. This is because, as a small business owner, there’s a lot that you can offer, such as jobs and you’re also contributing to the country economically.

However, keeping a tight ship on finances, particularly cash flow, can be tough. While small and medium enterprises (SMEs) across South Africa represent 98% of businesses and employ more than half of the country’s workforce across all sectors, they’re also the most at risk financially.

‘The Covid-19 pandemic and the recent economic downturn has led to lower demand and cashflow, which means these businesses need as much financial stability as possible,’ says Naledzani Mosomane, head of enterprise development at Standard Bank South Africa.

But if you’re having cash-flow problems and need more funding to support expansion for your small business, where can you turn? Here we offer tips on how SMEs can find funding and who they can approach for loans and grants.

Get a bank account

If you haven’t got a bank account for your business, get one! It’s one of the most important steps in becoming a formalised business and can help you in gaining access to finance.

There are advantages to formalising your business. According to the World Bank formalising a business results in, on average, 19% better salaries for workers than ones working for the informal economy.

What’s more research shows that informal businesses are also only about 25% as productive as their more formal counterparts, meaning they’re usually less profitable, and they generally lack access to finance to build up their capabilities.

Speak to your bank about Finance

In sub-Saharan Africa, 51% of businesses lack access to funding according to the International Finance Corporation. It’s not easy getting finance from banks but there’s no reason why you can’t give it a try especially if you have a good credit record. If your bank doesn’t grant you finance, they could help in other ways.

Standard Bank’s Mosomane says the bank has been deliberate in building and creating a range of non-banking solutions that aim to strengthen enterprises.

‘You may not know all your options, but through our Enterprise Direct virtual environment, entrepreneurs can consult with a team of business bankers and specialists who understand unique business needs and match them with the right set of solutions,’ says Mosomane.

Government grant or loan

The South African government offers several grants through development finance institutions (DFIs) like, for example, the Small Enterprise Finance Agency (SEFA) and the Industrial Development Corporation (IDC).
DFIs may also offer loans to SMEs. SEFA, for instance, offers various loans from R50,000 to a maximum of R15million.

Make sure you read the terms and conditions of each grant or loan carefully as there can be stringent criteria to adhere to before you’re given any money.

Angel investors and alternative funders

Angel funding is a popular alternative to seeking finance from traditional banking. An angel investor is an individual that provides capital to start ups in exchange for ownership equity.

Top angel investors in South Africa include former FNB boss Michael Jordaan; Abu Cassim, founder of angel investor network Jozi Angels; and Daniel Guasco a serial entrepreneur and founder of Team Africa Ventures to name but a few.

Alternative funding companies are also an option. GroWise, for instance, offers funding from R35,000 to R3million. GrowWise’s chief risk officer Jonti Strimling says that alternative business funders have a differentiated approach to mitigating risk and understand the cashflow requirements of small businesses.  It means they are more able to make quick decisions and tailor the funding and repayments to each client’s specific circumstances.

He says: ‘We have honed our model to assess the propensity of a client to make repayments and the sustainability of their cashflow in less than 24 hours – we usually pay out within two hours of approval. This model enables us to viably fund businesses that other funders tend to avoid. Clients get quick and flexible funding, designed around the particular needs of their businesses – and it is available when they most need it.’

Angel investors and private funders may offer you credit but remember that nothing’s free. Make sure you get legal or business advice as you read through the terms and conditions. You may get charged interest or your funder may want equity in your business. It’s always important to establish the facts and understand the contract before signing on the dotted line to avoid any regrets later.